What business are you in?

 I was scanning my LinkedIn stream and saw an article about United Airlines, and their (nefarious) plot to get their passengers to switch to their credit cards.  From what I gather from the article, using their card gets you more miles on a flight than if you book with another credit card.  Click here to see the post on LinkedIn. 

Leaving aside for a second what it means to folks in places like Chicago and Denver and San Francisco, where United controls a significant portion of the gates and is in some instances the only real option for flying, we can ask ourselves - why does a transportation company care what credit card you use?  And the secret hiding in plain sight is that the airlines make more profit from credit card fees than they do from ticket sales.  If that's news to you, don't take my word for it.  All the majors operate in a loss without their loyalty programs.

Which leads to another question - given the move to subscriptions, outsourcing, monetization of assets and more, what business are you really in?  United is a huge business with tons of physical assets but is reality a financial company.  And that gives me the willies.

Here's why this worries me, two words, General Electric.  If you can remember back when Jack Welch was the celebrated CEO, on the cover of Forbes and Fortune, speaking at hundreds of events, you'll remember that GE was celebrated as an old school phenomenon - a company that made stuff like jet engines and refrigerators, but had enterprise value.  That was because GE was a physical company but was powered by one division - GE Finance, which was making money hand over fist, until it wasn't.  The financial division covered over the fact that the other divisions were losing money or barely breaking even, and when the financial crisis in 2008 hit, GE took a significant blow, leading to the breakup of GE into three separate companies.  Everything seemed peachy keen at GE, but GE Finance was generating the vast majority of the profits, and when the housing crisis occurred, a factor that would not seem to impact GE, it collapsed the house of cards.

What's core to your business?

I am sure, no positive, that United, and Delta, and American have hired really smart financial folks to help them mitigate the risk of all the exposure to credit card balances and purchases, fuel costs and so on.  Of course, these are the same companies that failed to derisk fuel costs back a few years ago, and all of the majors, except Southwest, had to raise fares because they were arbitraging fuel costs.  When the US attacked Iran recently, guess which companies weren't hedging fuel costs?

If you failed to arbitrage one of your few top cost drivers IN A BUSINESS YOU UNDERSTAND then why should I believe you can understand and effectively manage credit card debt and high finance -  what is becoming your top revenue and profit generator - a business you don't understand and to a great degree not associated with your core business?

Understanding your vertical in depth

In a company like United, thousands of employees focus every day on getting airplanes to their destinations safely and on time. They focus on getting your baggage on the right plane.  They focus on maintaining the planes, keeping them fit for service.  They decide about the number of gates and number of flights to a specific destination.  The folks at United run one of the largest airlines in the world, and their focus should be on operating an efficient and safe airline.  The knowledge that they do this in a money-losing fashion before adding back in the profits from credit cards should cause all of us to wonder - what business are they in, and what risks or new sensitivities will emerge if/when credit cards and financial balances and payments (or lack of payments) becomes an issue?

How does a company that is supposed to be focused on safety and efficiency and customer (passenger) service mesh with a company regularly arbitraging the value of its credit card portfolio?  After all, we don't expect Capital One to operate airlines or drive the railroad infrastructure.  What happens if there is a conflict between operating safely and efficiently and honoring tickets if/when the credit card portfolio dips and doesn't generate the profits to keep the airline in the black?  What gets cut?

What were once habits are now vices

Originally, points and miles were meant to increase loyalty.  They were an added perk when you flew to accumulate miles or points to a free ticket.  Frequent fliers would often try to fly only on one airline so they could stack up status and miles.  Now, what was a benefit will to some degree become a handcuff.  Even if you are a loyal flier, if you don't have the airline's card, you will get less points or mileage than someone flying next to you who does, and increasingly you'll be discouraged from flying other airlines.  Once they have you using their card, they can track your travel and trips.

Now, it's not enough to be a frequent flier, demonstrating loyalty with repeat business.  Now, it's expected that you'll use a preferred form of payment along with demonstrating loyalty for your admittedly often subpar service, and, since the airlines can't be bothered with hedging fuel costs, subject to price hikes due to poor planning on their part.  We are no longer customers who expect service, we are serfs told how to interact. 

Please just be really good at one thing

I have a simple plea to the airline industry - please just be great at something.  Be a great credit card company with exceptionally low fees and customer benefits, or be a great airline, managing on time departures, reasonable fares and excellent customer service.  Currently, you aren't doing either well.

This has a larger message, though, as businesses explore how to monetize their relationships, gain more avenues for revenue and explore financial engineering.  We consumers are watching, asking ourselves about the value for money, and where your focus is.